If you’re not on top of your value-added tax (VAT) accounting, you should make it a new year’s resolution to do better – and do so quickly. HM Revenue & Customs is cracking down on small businesses that don’t get it right.
Any business with annual sales of more than £85,000 must be registered for VAT, charging its customers the tax and passing the proceeds on to HMRC.
But data from the tax-investigation firm PFP suggests small businesses had to find an extra £1.7bn last year following HMRC’s investigations into the amount of VAT they paid in the 2017-2018 financial year.
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The tax authority has pledged to continue with its more aggressive stance towards VAT collection. Various estimates have suggested that the VAT gap – the difference between what businesses should be paying and what is actually being collected – has risen to a record high.
That has prompted HMRC to appoint specialist teams to look at industries associated with poor VAT management. These include trades where customers typically pay in cash, such as fast-food outlets.
Online retailers, including small businesses selling on marketplaces such as Amazon and eBay, are also a target. In practice, however, any business could come under scrutiny from HMRC, so make sure you’re paying the right amount.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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